07 Jul Constructive dismissal – Dismissal by Employer or Resignation by Employee
“Dismissal” is the termination of employment by an employer, which may lead to a claim for reinstatement (or monetary compensation in lieu of reinstatement) by an employee. Ending the employer-employee relationship for reasons of serious misconduct, poor performance, contractual terminations, non-renewals of employment contracts, forced resignations and retrenchments are all common types of dismissal. However, employers should be particularly mindful of conduct which could amount to “constructive dismissal”.
What is Constructive dismissal?
Essentially, constructive dismissal occurs when an employee terminates his employment due to the conduct of his employer which amounts to a breach going to the root of the contract of employment.
Simply put: An employee walks out of his employment citing the reason for doing so as the conduct of the employer.
The test for constructive dismissal
It has been established that the test for constructive dismissal is not the unreasonableness test, i.e., it does not revolve around the question of whether the employer’s conduct was unfair or unreasonable. The correct test is the ‘contract test’. In other words, it must be proven by the employee that the conduct of the employer amounts to a fundamental breach which goes to the root of the contract or whether he has evinced an intention no longer to be bound by the contract.
It does not need to be shown that the employer intended any repudiation of the contract. A Court/tribunal will look at the employer’s conduct as a whole in determining whether, judged reasonably and sensibly, it amounts to conduct that the employee cannot be expected to put up with.
See: Anwar Abdul Rahim v Bayer (M) SDN BHD [1988] 2 CLJ 197.
Conduct of employer that may lead an employee to cite Constructive Dismissal.
Common situations which may amount to a breach of contract justifying a constructive dismissal claim include:
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- Non-payment of wages, allowances, contractual bonus;
- A departmental transfer, demotion or change of job description;
- An unsafe working environment;
- Sexual harassment;
- Forced resignations – due to threats or duress;
- Failure to deal with allegations of discrimination despite concerns/complaintsbeing raised
- Disciplinary and/or grievance processes not handled adequately
- reduction of duties and/or change of job scope
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Ng Teck Fay v Mahkamah Perusahaan Malaysia & 1 other[2021]
Notably, a very recent decision of the Court of Appeal in the case of Ng Teck Fay provides an important insight on the type of conduct which may amount to constructive dismissal.
In this case, YA Datuk Lau Bee Lan, chairing the three-man panel, reiterated that the correct test in a case of constructive dismissal is the Contract test. Here, the (Appellant) employee, an Assistant General Manager of the Company (employer) received two letters, in the course of a meeting. In effect, these letters, entitled “Change of Job Scope” and “Job regrading to Senior Manager” respectively, saw a substantial reduction in the Appellant’s duties and the Appellant’s demotion from Assistant General Manager to Senior Manager.
Four days into his demotion, the Appellant cited constructive dismissal in his letter dated 30 May 2014 and left the service of the Company. In his letter, the Appellant stated that he considered himself constructively dismissed due to his demotion, the regrading and reduced benefits that came with the change of role.
In addition, there was a clear and substantial reduction in the employee’s duties. For instance, as Assistant General Manager, the Appellant was in charge of the Business Unit, Family, Group and Medical Claims. As a result of his demotion, the Appellant was stripped of his Medical Claims Administration duties, which was instead assigned to another employee.
It was argued that the Industrial Court had given undue emphasis to the humiliation suffered by the Appellant when news of his demotion was circulated via email blast to other employees which led to the conclusion that this came under the reasonableness test, thereby disqualifying him from citing constructive dismissal.
Further, the relegation of responsibility, frustration and loss of estimation among fellow employees entitled him to walk out of his employment and to cite constructive dismissal.1
Upon consideration of all the circumstances of the case, YA Datuk Lau Bee Lan held that the employee had met the requirements of the contract test. By subjecting its employee to such a demotion, the Company was guilty of conduct amounting to a significant breach going to the root of the contract of employment. The Claimant was right to consider himself constructively dismissed and dismissed without just cause or excuse.
CONCLUSION
It is clear that employers would be wise to exercise caution and tread with care in dealing with employees lest its conduct be construed as constructive dismissal.
Before the employer takes drastic actions against its employee, it is best that legal advice is sought to determine whether the conduct amounts to a fundamental breach of the terms of contract of employment or merely an unreasonable conduct.
Where the employee walks out of his employment due to the unreasonable behaviour of the employee, it is not constructive dismissal but that he has resigned from his position.
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*Kindly note that the above does not constitute legal advice and is distributed for educational purposes of the law.
